Moderating Factors of Immediate, Gross, and Net Cross-Brand Effects of Price Promotions

Posted: 13 Nov 2013

See all articles by Csilla Horvath

Csilla Horvath

Radboud University Nijmegen

D. Fok

Econometric Institute - Erasmus University Rotterdam; Erasmus Research Institute of Management (ERIM); Tinbergen Institute Rotterdam

Date Written: September 19, 2013

Abstract

This article examines cross-price promotional effects in a dynamic context. Among other things, we investigate whether previously established findings hold when consumer and competitive dynamics are taken into account. Five main influential effects (asymmetric price effect, neighborhood price effect, asymmetric share effect, neighborhood share effect, and private label versus national brand asymmetry) appear jointly in the second layer of a pooled HB-VEC-VARX model, together with brand- and category-specific variables. This study tests the relative importance of these key factors across three scenarios: with no market dynamics, when only consumer dynamics are considered, and when competitive reactions are also taken into account. The results confirm all five influential effects, even if they are jointly estimated, and consumer and competitive dynamics are taken into account. National brand/private label asymmetry has the strongest influence on the cross-price promotional effects and becomes significantly stronger when consumer and competitive dynamics are taken into account. Dynamic consumer responses and competitive reactions both affect cross-brand price elasticities, and contrary to expectations, competitive reactions accumulate rather than diminish cross-price elasticities. Preemptive switching does occur; i.e., a brand's promotion in period t hurts a competitor's sales in subsequent periods. Our findings are based on an extensive data set. To attain generalizable results, we analyze 33 categories in five stores — that is, 165 store/category combinations.

Keywords: cross-price elasticity, price promotions, asymmetry, dynamic effects, competitive reactions, hierarchical Bayes

Suggested Citation

Horvath, Csilla and Fok, Dennis, Moderating Factors of Immediate, Gross, and Net Cross-Brand Effects of Price Promotions (September 19, 2013). Marketing Science, Vol. 32, No. 1, 2013; pp. 127-152; DOI: 10.1287/mksc.1120.0748. Available at SSRN: https://ssrn.com/abstract=2328115

Csilla Horvath (Contact Author)

Radboud University Nijmegen ( email )

Postbus 9108
Nijmegen, 6500 HK
Netherlands

Dennis Fok

Econometric Institute - Erasmus University Rotterdam ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1333 (Phone)
+31 10 408 9162 (Fax)

Tinbergen Institute Rotterdam ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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